Perspective

Life is never as funny as it is to an 11-year-old boy. Especially when it's not supposed to be. Take confirmation class at church.

First go back 50 years or so, and remember that the Bible meant the King James Version in most small churches. So when one of the girls in the class is asked to read aloud the Ten Commandments, the boys perk up, waiting for the always hilarious No. 10.

The embarrassed girl slows toward the end of the verse, dreading the already barely contained sniggering. The pastor pinches the bridge of his nose and reconsiders his calling. Ah, happy days…

Covet Thy Neighbor. It's not so funny now. In case you haven't noticed, people are driving by your farm and coveting like crazy. Yes, they covet your ass(ets).

Clearly, folks have taken notice of the remarkable returns in commodities. They have also noted how our revenue stream in grain production has been nearly bulletproof, thanks to mandated markets.

Furthermore, those markets paint a pretty bright comparison to 1.6% one-year certificates of deposit. Now throw in aggressive outreach programs to general investors by the real estate industry, and voila—we're pressuring land prices swiftly past prudent P/E ratios.

Haven't we been here before?

Since many of us are heavily invested in land compared with other assets, this may seem like a good thing, but it's only an abstract calculation. Having to take advantage of asset price increases means actually selling the stuff—an outcome we link to failure.

It also means that expansion by ownership (as seems to always be the case) will remain a leap of faith. But there may be a difference this time around.

Once the spotlight is pointed on a formerly obscure investment jackpot, it seldom disappears. With increased information flow and market transparency, even our relatively closed sector can be scrutinized by disconnected money sources. Farmland will be on the radar from now on, I suspect.

More important is the perception of safety that, frankly, farmers buy into as well. At least those 160 acres can't just disappear like bankrupt company stock, we say.

Finance Safety. In fact, as Massachusetts Institute of Technology economist Ricardo Caballero suggests, the demand for safe assets is one big reason financiers scrambled to create securitized mortgage instruments with the appearance of safety—and ratings agencies fell for it. It's also apparent safety is weighted more heavily than return.

The embrace of farmland as a coveted asset may just be beginning. There is too much money chasing too few solid alternatives. Any quiver in stock prices, for example, could free up even more liquidity looking for something investors can sleep at night owning.

Finally, given the widening inequality of income here and abroad, most gross domestic product recovery will likely accrue to the investing class—not the consuming class. This means inflation is more likely to show up in assets, rather than consumer goods.

My admittedly crude calculations suggest that land prices are near the limit for income streams. Furthermore, income streams have been pushed by the ethanol mandate to a point where new biofuel demand could significantly offset feed and export losses.

Hence, if investors (and farmers) push prices higher, farmland may be the next bubble analysts will wonder how they overlooked. The mistake we make is linking nonleveraged (cash) asset purchases with prudent investing. While it makes the consequences of a collapse less dire, it does not certify the price as froth-free.

Bubbles mean less for long-term owners, such as farmers, but they still present an inefficient allocation of wealth and painful adjustments.